RBI backs crypto ban, tax department warns of evasion risks

RBI said banks and financial institutions should be barred from ⁠holding, trading or gaining exposure to crypto assets and privately issued stablecoins to limit contagion risks, documents from May and June showed.
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The Reserve Bank of India (RBI) reiterated its stance favoring a cryptocurrency policy that leans toward prohibition, while the nation’s tax authority cautioned that monitoring trades on offshore platforms remains challenging, according to government files examined by Reuters showed.

The documents indicate that major Indian agencies favor stricter restrictions on virtual digital assets, despite the absence of an official government ban or regulatory framework.

Since a 2018 court decision nullified RBI regulations that had effectively prohibited them, cryptocurrencies have occupied a legal gray area in India.

A 2021 draft bill seeking to outlaw private cryptocurrencies never reached Parliament, and a related discussion paper has been postponed repeatedly. The government has postponed enacting a formal virtual‑asset framework, insisting any approach must weigh innovation against risk while preserving monetary sovereignty, financial stability, and consumer protection.

In September, during internal talks, India’s finance ministry—after consulting the RBI—endorsed limited regulatory guidance for virtual assets, contending that current tax and other statutes had already mitigated risks associated with the asset class, as reported by Reuters.

Recent documents show that senior officials worry about rising threats to financial stability as cryptocurrency trading persists without clear regulations.

India’s finance ministry and the RBI did not reply to Reuters requests for comment.

Global acceptance of cryptocurrencies has risen after U.S. policy shifts, particularly legislation encouraging wider stablecoin use, which has boosted expectations for broader adoption.

Although nations such as Japan and Singapore have instituted cryptocurrency regulations, China has banned the use of these tokens.

Despite India’s unclear policy, the nation boasts close to 39 million cryptocurrency traders who collectively held roughly $2.1 billion in digital assets at the end of May, per tax‑department estimates.

‘LEANING TOWARDS PROHIBITION’

The RBI, which has repeatedly warned about crypto-related risks, reiterated that a policy inclined toward prohibition could be justified.

It stated that banks and financial institutions should be prohibited from holding, trading, or gaining exposure to crypto assets and privately issued stablecoins to curb contagion risks, according to May‑June documents.

Currently, Indian banks face no outright ban on cryptocurrency dealings, yet leading lenders have steered clear after repeated RBI warnings.

The central bank leans toward prohibition to keep cryptocurrencies outside the regulated financial system, a source acquainted with the RBI’s thinking said, asking for anonymity because they are not authorized to speak to the press.

The RBI has also cautioned against stablecoins.

While foreign‑currency‑backed stablecoins endanger domestic sovereignty, rupee‑denominated tokens could diminish government revenue from fiat issuance and threaten financial stability during market stress, the RBI noted.

Permitting stablecoins could also obscure cryptocurrency gains for tax purposes, as holders would have less incentive to convert to fiat. India taxes crypto gains at 30%.

MISREPORTING CRYPTO GAINS

India’s tax department has uncovered cases of underreporting cryptocurrency holdings in income‑tax filings, per the documents.

The department’s data revealed that less than a quarter of the 645,000 individuals who conducted cryptocurrency transactions in the fiscal year ending March 2023 disclosed those transactions on their tax returns.

Transactions channeled via overseas exchanges and private wallets obscure beneficial owners, complicating tax recovery, while rupee‑denominated peer‑to‑peer trades hinder tracking of taxable income, the tax department noted.

Global crypto exchanges such as Binance and Coinbase may operate in India once they register with a government agency.

The tax department also warned that price volatility and the lack of uniform valuation standards make assessing crypto assets for tax purposes challenging.

The documents indicated that the Ministry of Corporate Affairs is reviewing accounting standards and related guidance for virtual digital assets.

Published on July 8, 2026